CERTIFICATION AND FINANCING PROPOSAL

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1 CERTIFICATION AND FINANCING PROPOSAL INFRASTRUCTURE PROGRAM FOR THE STATE OF NUEVO LEON: MODERNIZATION AND IMPROVEMENTS TO DON MARTIN IRRIGATION DISTRICT 004 IN Published: September 19, 2014

2 CERTIFICATION AND FINANCING PROPOSAL INFRASTRUCTURE PROGRAM FOR THE STATE OF NUEVO LEON: MODERNIZATION AND IMPROVEMENTS TO DON MARTIN IRRIGATION DISTRICT 004 IN. INDEX EXECUTIVE SUMMARY 1. ELIGIBILITY 3 2. CERTIFICATION CRITERIA 2.1 Technical Criteria Project Description Technical Feasibility Land Acquisition and Right-of-Way Requirements Management and Operations Environmental Criteria Compliance with Applicable Environmental Laws and Regulations Environmental Effects/Impacts Financial Criteria PUBLIC ACCESS TO INFORMATION 3.1 Public Consultation Outreach Activities 16 1

3 EXECUTIVE SUMMARY MODERNIZATION AND IMPROVEMENTS TO DON MARTIN IRRIGATION DISTRICT 004 IN Project: The proposed project consists of the rehabilitation and modernization of the Don Martin Irrigation District (DMID or District ), located in Anahuac, Nuevo Leon, Mexico and includes lining or enclosing of distribution infrastructure and irrigation system improvements. ( Project ) Project Objetive: Expected Project Outcomes: The Project will increase water management efficiency including water conservation efforts in agricultural activities through the modernization of water distribution infrastructure and improvements to irrigation systems, resulting in a decrease in water extraction from the reservoir to reach a sustainable water volume of Mm 3. The expected environmental and human health benefit expected from the implementation of the Project is an increase in water use efficiency in the DMID to an estimated 60%. 1 Population Benefited: 18,480 residents. 2 Sponsor: Borrower: State of Nuevo León. State of Nuevo León. Project Cost: 3 Up to $647.3 million pesos (US$49.8 million) 4 Loan Amount: 5 Up to $550.0 million pesos (US $42.3 million) 1 Source: Modernization and Improvements Master Plan for the Don Martin Irrigation District 004. Plan Director para la Modernización Integral del Distrito de Riego 004, Don Martín, CONAGUA, (CONAGUA Master Plan) CONAGUA s master plan indicates that the average efficiency of the DMID for the last 20 years ( ) was 41.8%. Once completed, the improvements within the District will support an efficiency of 60-65%, allowing the local agriculture industry to operate based on a sustainable water volume determined by CONAGUA INEGI census data for the town of Anahuac, Nuevo Leon. 3 The contribution of the State of Nuevo Leon to the comprehensive DMID modernization effort. 4 Unless otherwise noted, all U.S. dollar figures are quoted at an exchange rate of $13.0 pesos per dollar, according to Banxico dated September 4, The loan amount requested by the State of Nuevo Leon from NADB will be utilized for two projects: a) Basic Urban Infrastructure in the Monterrey Metropolitan Area and b) Modernization and Improvements to the Don Martin Irrigation District (DMID), in the municipality of Anahuac, Nuevo Leon. This document includes the information related to the DMID. 2

4 CERTIFICATION AND FINANCING PROPOSAL MODERNIZATION AND IMPROVEMENTS TO DON MARTIN IRRIGATION DISTRICT 004 IN Project Type 1. ELIGIBILITY The Project falls within the eligible sector of water conservation. Project Location The Project will be implemented in the Municipality of Anahuac, Nuevo Leon, approximately 65 kilometers south of the US/Mexico Border within the BECC/NADB jurisdiction. Project Sponsor and Legal Authority The public sector Project Sponsor is the state of Nuevo Leon (the State or the Sponsor ), a public entity legally constituted in accordance with articles 40 and 43 of the Constitution of the United States of Mexico, and articles 29 and 30 of the Constitution of the free and sovereign state of Nuevo Leon. The Nuevo Leon State Congress through the authorization of its 2014 revenue law has authorized a debt ceiling which will partially fund the proposed Project. For 2015, the Nuevo Leon State Congress is expected to authorize additional debt levels that will include the remaining funding requirement for the Project. 2.1 TECHNICAL CRITERIA Project Description Geographic Location 2. CERTIFICATION CRITERIA The Don Martin Irrigation District (DMID or District ) is located in the municipalities of Juarez, Coahuila and Anahuac, Nuevo León. The DMID starts in the state of Coahuila at the Venustiano Carranza reservoir (better known as the Don Martin Reservoir), 6 near the Town of Don Martin, and extends through the municipality of Anahuac in the state of Nuevo Leon. The DMID comprises a total surface of 29,615 hectares (73,190 acres), of which 6.5% are located in the state of Coahuila and the remaining 93.5% are in the state of Nuevo Leon. The proposed Project 6 The Venustiano Carranza Reservoir is located in the municipalities of Juarez and Progreso, Coahuila, 43 miles (70 km) to the northeast of the Town of Anahuac, Nuevo Leon. 3

5 is located, in its entirety, within the state of Nuevo Leon. Figure 1 shows the geographic location of the area included in the scope of the Project. Figure 1 MAP OF PROJECT AREA Community Profile According to the 2010 population census in Mexico, the state of Nuevo Leon has 4.65 million residents. Between the years 2000 and 2010, Nuevo Leon experienced an annual growth rate of 2.16%, which was higher than the national annual growth rate of 1.8%. 7 According to the latest economic census, manufacturing constitutes the most important sector in Nuevo Leon, generating 55.8% of its gross domestic product (GDP) and employing 29.1% of its working population. Commerce represents the second largest sector, generating 9.2% of the GDP and employing 23.5% of its work force. Financial services represent 6.1% of its economy and contribute with 3.2% of total employment. Because of its diverse economic, commercial and industrial activities, in 2009, the state of Nuevo León generated 8.3% of the total GDP for the country. 8 The Project will primarily benefit the population of the Municipality of Anahuac, most of which are involved in the agriculture and livestock industries. Anahuac has a total population of 18,480 inhabitants, which represents 0.4% of the state population. Over the last 10 years, the 7 Source: General Population Census. National Institute of Geography and Statistics, INEGI Source: INEGI, 2009 economic census. 4

6 community experienced an annual growth rate of 0.32%, which is lower than the national growth rate of 1.8%. 9 Water Management Profile National In 2012, the total water demand in Mexico was approximately 78,400 Mm 3 (63.5 million acre feet), of which 8.3% was met by water supply from over-exploited aquifers, according to the Secretariat of Agriculture, Livestock, Rural Development, Fisheries and Food ( SAGARPA ). The National Water Commission ( CONAGUA ) estimates that the demand for water will increase 16.3% in relation to the demand in 2012, reaching almost 91,000 Mm 3 (74 million acre feet) by the year Similarly, in the same time period, the availability of water is expected to decrease by 12.9%, leaving only 68,000 Mm 3 (55 million acre feet), which represents a deficit of 23,000 Mm 3 (19 million acre feet) to meet the increased demands. This anticipated growth in demand is evidenced by the 2013 water demand which was estimated as 82,700 Mm 3 (67 million acre feet), an increase of nearly 6% in one year. 10 Figure 2 illustrates the use of water in Mexico. Figure 2 WATER CONSUMPTION IN MEXICO Source: CONAGUA. Statistics on Water in Mexico 2011 The National Water Plan (Programa Nacional Hídrico or NWP ) establishes strategies, priorities, and regulations required to support the appropriate management of the national water resources. It also identifies the availability, use and application of water at a national level. The NWP consists of six guiding principles designed to strengthen the management of water by increasing technical capacities and technology in the sector to ensure adequate water supply and use for human consumption. Objectives 1, 4 and 5 of the NWP, specifically, address strategies and action items for the improvement and management of agriculture water use since it is the largest consumer of water at the national level. The Project proposes system improvements aligned closely with these objectives. 9 General Population Census. National Institute of Geography and Statistics, INEGI Source: Estimate of Water Demand and Consumption. Secretary of Agriculture, Livestock, Rural Development, Fish and Food. Secretaria de Agricultura, Ganadería, Desarrollo Rural, Pesca y Alimentación. (SAGARPA 2012). 5

7 The NWP describes that the main challenge in water use for agriculture, besides the availability of water, is the inefficient water delivery systems and irrigation techniques. Irrigation Districts were designed in accordance with the prevailing technology at the time for the application of water by gravity into the parcels. This irrigation practice uses more water than necessary by predominantly implementing surface or flood irrigation techniques. Additionally, aging infrastructure contributes to a decreased efficiency in water management. 11 SEMARNAT estimates that the efficiency for the period was an average of 64%. In addition to physical infrastructure, a strong institutional structure is also important to accomplish adequate water use management. To ensure decentralized and participatory management of water resources nationwide, a series of permanent bodies have been set up in Mexico at different levels organized by CONAGUA. These entities include 13 River Basin Organizations, 25 River Basin Councils, 21 River Basin Commissions, 25 River Basin Committees, 78 Technical Groundwater Committees, and 85 Irrigation Districts. The irrigation districts include various types of infrastructure to manage the water resources used in agriculture, such as reservoirs, storage basins, pumping stations, wells, canals and access ways, among others. The irrigation districts were constructed, operated and managed by the federal government until the year 1990, when management was transferred to the irrigation district users. By the end of 2011, the transfer to the user organizations was complete for more than 99% of the total surface area of the irrigation districts. However, a portion of the infrastructure continues to be managed by the federal government and all irrigation districts are regulated by CONAGUA. 12 Don Martin Irrigation District (DMID) Of the 85 irrigation districts in Mexico, two are located in the State of Nuevo Leon: the Don Martin Irrigation District (DMID) and the Las Lajas Irrigation District. The DMID, also known as District 004, is located in CONAGUA s Region VI (the Rio Bravo region) within the Bravo- Conchos watershed. The water source for the DMID is the Venustiano Carranza Reservoir, which has a surface area of 19,800 ha (49,000 acres) and a capacity of 1,358 Mm 3 (1.1 million acre feet), with an average volume of 281 Mm 3. The reservoir also serves as the source of water supply for Anahuac. 13 The DMID has been an important agricultural area in the state of Nuevo Leon. The main crops include basic grains, such as: corn, wheat and sorghum. Since the early part of 1990s, before the prolonged drought began, the production represented 13% of the total production of the State. The DMID began operating in 1931, with a total area of over 60,000 ha (148,000 acres). Prior to the resizing of the District resulting from the Project, the area served has been a little more than 29,600 ha (73,000 acres) 14 with irrigation system infrastructure consisting of 756 km (470 miles) 11 The efficient use of water for irrigation considers several factors: from storage, to those generated by the conveyance systems and parcel irrigation, including evaporation in storage systems, water lost by seepages in conduction, lack of accuracy in measurement and water loses by evapotranspiration of crops. 12 Source: 2012 Digital Atlas of Water in Mexico. National Water Information System, CONAGUA 13 Source: CONAGUA Master Plan. 14 In 1941 a Presidential decree was promulgated to reduce the surface of the DMID due to water supply problems. 6

8 of irrigation canals, 119 km (74 miles) of main distribution canals and 637 km (396 miles) of secondary distribution canals. 15 Currently, the DMID has a deficient operation due to the water losses caused by obsolete and deteriorated infrastructure, as well as the inefficient operation of both the main and the secondary canal systems. This condition has hindered the feasibility of planting crops, other than basic grains. Additionally, poor crop yields and the complete abandonment of agricultural land by some of the land owners have negatively impacted the agriculture industry in the northern part of the state of Nuevo Leon. 16 Although the DMID does not have a metering system in place to be able to measure the amount of water provided to each user, CONAGUA estimated that the average efficiency in the District is 41.8% due to water losses in the conveyance systems and the practice of flood irrigation. Figure 3 shows the estimated average efficiency in the DMID for the agricultural years from 1984 to Figure 3 ESTIMATED EFFICIENCY IN DMID ( ) Source: CONAGUA Master Plan The climate of the region also affects the operation of the DMID where wide variations in water availability have caused long periods of drought that has affected its agricultural activity. Particularly, this condition has resulted in effective irrigation during only three of the last ten years. 17 Due to the problems caused by the drought and the low availability of water, over the last 20 years, the average area irrigated has been 24,767 acres (10,023 ha.) or only 34% of the land. 15 Source: Web page for the State Information System for the Sustainable Development of Rural Nuevo Leon. 16 Source: Final design for the Review and Modernization of the Don Martín Irrigation District 004. CONAGUA. 17 Source: Detailed Action Plan for the Project Sustainable Water Management in the Don Martin Irrigation District 004. CONAGUA (2009) 7

9 For this reason, it was necessary to create the conditions that ensure the users of the DMID, the availability of water resources by promoting long term modernization and improvements in the District that will allow an effective and sustainable use of the available water. 18 Consistent with this need, in 2006, CONAGUA started the necessary planning studies aimed at achieving a more efficient use of water resources, sufficient water supply, and increased agricultural production for the users of the DMID. The studies include the Master Plan for Comprehensive Modernization of Irrigation District 004, Don Martin (Master Plan), which includes an analysis of the sustainable volume of water in the basin and the Venustiano Carranza reservoir. 19 Additionally, the Master Plan proposes to resize the DMID surface to 36,770 acres (14,881 ha.) and to implement infrastructure improvements to increase efficiency and water availability. On July 25, 2012, the state of Nuevo Leon, SAGARPA, CONAGUA and the associations of the DMID users of the state of Nuevo Leon signed a coordination agreement for the execution of the necessary activities to complete the Modernization and rehabilitation of the Don Martín Irrigation District 004 ( The Agreement ). The purpose of this Agreement is to authorize and commit the organizations to participate in the technical activities and to ensure the financial resources necessary for the modernization and improvements of the DMID. Scope and Design The investments committed by the State of Nuevo Leon, in accordance to the commitments made in the Agreement for the modernization and improvements of the Don Martín Irrigation District 004, are expected to fund up to 28% of the following infrastructure improvements: Lining of up to 110 km (69 miles) of the main distribution canal. Enclosing of up to 310 km (193 miles) of secondary canals and the installation of metering systems to measure the water volume delivered to the users. Improvements to site irrigation systems within DMID, supporting a conversion from traditional surface or flood irrigation practices to more efficient irrigation technologies. In addition to the investments by the State of Nuevo Leon, funding will be provided by CONAGUA, SAGARPA and the district users to fully implement the proposed infrastructure improvements. Subject to the availability of funds, the Project is expected to complete all the activities included in the DMID modernization and improvement project within 4 years. Figure 4 shows the location of main and secondary canals and the location of expected works. 18 Source: Master Plan. CONAGUA. 19 For CONAGUA, the sustainable use of water is achieved when its use generates social wellbeing, facilitates economic development, and preserves the adequate quality and quantity for current and future generations as well as the flora and fauna of the region. Office of the President,

10 Figure 4 IRRIGATION DISTRICT INFRAESTRUCTURE Source: State of Nuevo Leon 2014 presentation CONAGUA is responsible for developing final designs for all infrastructure tasks. According to the information provided by the Sponsor, investments related to the proposed improvements initiated in In 2013, approximately 7.5 km of the main canal were rehabilitated and 61 km of pipelines were installed to enclose the secondary canal system. 20 Table 2 shows the status of key tasks for the implementation of the Project. Table 2 PROJECT MILESTONES Key Milestones Status Procurement Process On Going Environmental Authorization Clearance Not applicable 21 Rights-of-Way Water Rights Complete Complete 20 Presentation Redimensionamiento y modernización del distrito de riego 004 Don Martin, State of Nuevo Leon, June According to CONAGUA s official letter No. BOO.821.DR (14) dated September 9, 2014, which references conclusions of the Master Plan. 9

11 The agencies involved in this project have committed to form a follow up group to evaluate progress of works, ensure project completion and determine the outcomes and water savings after all investments are completed Technical Feasibility Selected Technology CONAGUA, the State of Nuevo León, through their Agriculture Development Department (Dirección de la Corporación para el Desarrollo Agropecuario de Nuevo León or DCDANL ), and the Nuevo Leon Water Institute (NLWI) have developed several studies, diagnostics and designs associated with water infrastructure for agriculture at the DMID. The following studies have been developed with the purpose of establishing strategies and best design parameters for irrigation systems and associated infrastructure: Master Plan for Comprehensive Modernization of Irrigation District 004, Don Martin (Master Plan). (August 2006). This study was developed by CONAGUA and includes the following elements: 1) Modernization of DMID, 2) Determination of sustainable irrigation flow and 3) District resize. This study concluded with the need to develop a geographic information system (GIS) that collects parcel s information, and provides a tool to follow up the operation of the district. The study also determined the sustainable water allocation for the irrigation district which is Mm 3 per year. This volume represents a reduction of nearly 30% of the current volume extracted from the reservoir which is, on average, 191 Mm 3 per year. Geographic Information System Irrigation District Don Martin (December 2008). This study was developed by CONAGUA, to identify information needs, update the user database and records, and to implement a GIS for the Irrigation District. The study identified geographic areas where soil is not suitable for the establishment of agricultural crops. It also identified vegetated and unused parcels which, due to different reasons, especially the lack of water supply, have been left unirrigated. The study concluded that there is a need to resize the Irrigation District. Flagship Project Sustainable Water Management in the Irrigation District 004 Don Martín (June 2009). This study was developed by CONAGUA and describes detailed actions for the Sustainable Management of Water in the DMID. Some of the conclusions drawn from this study propose to perform works for the rehabilitation and improvement of the conveyance and distribution infrastructure as well as the elimination of approximately 14,700 hectares (36,411 acres) from the DMID boundaries. Based on the results of these studies, CONAGUA and the State of Nuevo León defined infrastructure improvement strategies presented within this Project. 10

12 Land Acquisition and Right-of-way Requirements CONAGUA, in compliance with the National Water Act (Ley de Aguas Nacionales LAN ), grants the users of the irrigation districts with an allocation of water rights and irrigation infrastructure. 22 The Project will be developed within areas and rights-of-way of the Irrigation District. No land acquisition or additional rights-of-way are necessary. As specified in Agreement, associations are committed to allow access to construction companies to any land or areas where main and secondary channels are located as wells as any infrastructure related to the Project. The Agreement also mentions that no compensation payment is needed for access. Additionally, the associations will manage and facilitate access to material banks during construction Management and Operations According to the Agreement, DMID users are responsible for the operation, maintenance and administration of main and secondary canal systems for irrigation as well as for drainage and roads. For the coordination of the operation and maintenance activities of the District users created a Limited Liability Company, denominated as "Unión de Asociaciones de Usuarios Anáhuac, S.R.L. de I.P. de C.V." The company will also be responsible for managing and contracting any activity associated to the operation and maintenance of hydraulic infrastructure as well as for executing loans obtained by users for operations and maintenance related to hydraulic infrastructure and assigned equipment. 24 Users will cover the costs of operation and maintenance with the income generated by crops. In order to reduce the DMID users investment, the Nuevo Leon State Government offered economic support in addition to that offered by the Federal Government oriented to the development of the investment project to modernize the DMID. 25 Additionally, the Agreement indicates that users associations will receive training and support in the use of pressurized irrigation systems, development of profitable low-water-demand crops, marketing of agricultural products and gaining access to agricultural loans granted by SAGARPA and the State of Nuevo Leon. 2.2 ENVIRONMENTAL CRITERIA Compliance with Applicable Environmental Laws and Regulations Applicable Laws and Regulations 22 Source: Modernization and Improvements Master Plan for the Don Martin Irrigation District 004, CONAGUA 23 Source: Tenth Clause of the Agreement between SAGARPA, CONAGUA, the sponsor and Civil Associations, dated June 25, Source: Corporation Deed of the Society for the Association of Users of the Irrigation District Don Martin 004, Coahuila y Nuevo Leon, dated November 17, Source: Modernization and Improvements Master Plan for the Don Martin Irrigation District 004, CONAGUA 11

13 The modernization and rehabilitation of the DMID will be performed in areas inside the district subject to the jurisdiction of CONAGUA and which have been, since 1930, impacted and are not part of protected natural areas or regions considered a priority due to biodiversity. Based on these characteristics, the Master Plan determined that an environmental authorization would not be required to implement the Project. CONAGUA confirmed this through official letter No. BOO.821.DR (14) dated September 9, The Project will support compliance with the following environmental laws and regulations related to water management. National Water Law, which provides the legal framework for water management in Mexico. It states that the use of the nation s water or the right to discharge wastewater will be carried out by concessions. General Law of Ecological Balance and Environmental Protection (LGEEPA), which establishes the environmental regulatory framework, expands the strategic vision and conveys specific powers and duties to the states and municipalities, so that environmental problems can be addressed directly. The Project will support the implementation of environmental legislation, based on improved water management, including the preservation of sustainable volumes and use of water supply, as indicated in the National Water Law. Environmental Studies and Compliance Activities According to the general characteristics of the Project, an environmental clearance study and authorization is not required for the construction of the Project. Because the Project is located in a previously disturbed area, only minimal temporary impacts are anticipated, primarily, associated with construction. In accordance with the practices recommended by federal environmental authorities, mitigation measures to address the temporary environmental effects of construction will be carried out. Pending Environmental Tasks and Authorizations There are no pending environmental tasks or authorizations. Compliance Documentation CONAGUA s letter (No. BOO.821.DR (14) dated September 9, 2014) satisfies the compliance documentation required for the Project Environmental Effects/Impacts The DMID has existed since the 1930 s and is one of the oldest irrigation districts in the country. The land served by the District has been predominantly used for agricultural productivity and is considered previously impacted. For this reason, no significant negative impacts on the natural resources of the area are foreseen in relation to the activities included in the Project. Instead, the purpose of the Project is to allow for the more efficient management of water resources, 12

14 reducing necessary extractions from the reservoir, maintaining a more sustainable volume of water for year-long agricultural activities, and improving the efficiency of water used on site for irrigation. The infrastructure will reduce water lost to evaporation and infiltration due to unlined canals and flood irrigation techniques, resulting in an increased efficiency of the system to 60%. Additionally, the improved conveyance will avoid losses also influenced by weeds and other foreign objects in the canal system, which cause the decrease in water flow and capacity. 26 In addition to the capital improvement project, other operational strengthening activities are expected to occur in accordance with the Agreement. For example, land that is currently abandoned and has not been cultivated will be eliminated from the District and reclassified for better use as rangeland for livestock. The User Associations of the DMID will also receive training from SAGARPA and the state of Nuevo Leon for the proper use and application of chemical products, such as fertilizers, contributing to the prevention and mitigation of environmental impacts and health problems related to the indiscriminant use of such products. Existing Conditions and Project Impact - Environment As water further becomes a scarce and costly resource, it is critical to implement measures that promote a more efficient use of water in agriculture. Surface or flood irrigation techniques are traditional methods that cause excessive water consumption. Environmental concerns related to this irrigation practice include depletion of water sources (falling water tables or reduced water levels in streams or reservoirs), soil erosion due to over-application, runoff and leaching of chemicals, salinization of the soil (salt-buildup), and harmful minerals and nutrients in the irrigation return flow that drain from the irrigated area. As previously mentioned, the operation conditions at the DMID have been affected, in recent years, by low water supply and poor reliability of supply for agriculture. In addition, the poor conditions of the infrastructure for water conveyance and distribution have further impacted the availability of water for irrigation. This situation has caused very low production and has led to a cycle where farmers do not have enough resources for adequate operation and maintenance of the existing infrastructure, which in turn, again, affects production opportunities. Mitigation of Risks Implementation of the Project will follow CONAGUA design criteria and oversight by the followup group will assure the implementation of best management practices to avoid unnecessary impacts to the environment. Additionally, as part of the modernization efforts, the DMID will support the following activities to mitigate environmental and health impacts related to agricultural activities within the District: 26 Detailed Action Plan for the Project Sustainable Water Management in the Don Martin Irrigation District 004. CONAGUA (2009). 13

15 - Ensure that all producers have the adequate equipment to apply agrochemicals such as fertilizers, herbicides, fungicides and insecticides, and have access to the specific advice about when to apply the recommended products. - Periodic monitoring to detect any change or increase in soil salinity levels, to apply preventive measure - Periodic monitoring of soil compaction and content levels of agrochemicals in the water table. - Promote farm practices to protect soil quality for cultivation purposes such as avoiding erosion, enhancing soil recovery, conserving soil humidity and incorporating organic matter into the top soil. Natural Resources Conservation The purpose of the proposed Project is focused on conservation of an essential natural resource water. Based on the Master Plan, the implementation of the Project will promote a reduction in the volume of water currently extracted from the Venustiano Carranza Reservoir. The Project is expected to achieve delivery and irrigation efficiencies sufficient to eliminate the withdrawal of approximately 40 Mm 3, reducing the extraction rate from approximately 191 Mm 3 per year to 146 Mm 3 per year, 27 in order to maintain the sustainable water levels at the water source. No Action Alternative The no action alternative is expected to further exacerbate the problem of water scarcity and the abandonment of land for agricultural activities, resulting in a negative effect on a local economy, which depends on this industry. Implementation of the Project as well as the additional efforts for strengthening the capacity of the agriculture users, will promote improved practices which are expected to result in better production, opportunities for higher yield crops and greater preservation of natural resources. Existing Conditions and Project Impact Health Access to sufficient quantities of safe water for domestic use, as well as for commercial and industrial applications, is critical to health and well being, and offers the opportunity to achieve human and economic development. The Project will promote a more efficient use of water, a reduction in over-extraction from available water sources, as well as the protection of water quality and the environment by instituting better management practices related irrigation techniques and the use of fertilizer and pesticides. Projects to protect water resources help improve the community s public health. 27 The CONAGUA developed a detailed analysis with historical data since 1930 to determine the sustainable water supply volume from the Dam. 14

16 Transboundary Effects No significant transboundary impacts or negative effects have been identified and none are anticipated as a result of the development of the Project. The Project has the potential to provide a positive transboundary impact based on water savings anticipated as a result of the proposed works. Maintaining sustainable water levels at the Venustiano Carranza Reservoir will support reliable supplies to other streams such as the Salado River which provides water to the Rio Grande River. Other Local Benefits CONAGUA s Master Plan estimates that the Project will benefit approximately 18,480 residents of Anahuac, Nuevo Leon. It is also expected that implementation of the Project will trigger economic development activities in the region to benefit, beside the DMID users, other sectors such transportation, commerce, equipment and materials supply FINANCIAL CRITERIA The State of Nuevo Leon has requested a loan for up to $1,000.0 million pesos from NADB to complete the financing of two separate projects: Basic Urban Infrastructure for the Monterrey Metropolitan Area; and Modernization and Improvements to the Don Martin Irrigation District 004 in Anahuac, Nuevo Leon, together the Projects. The Nuevo Leon State Congress through the authorization of its 2014 revenue law has authorized a debt ceiling which will partially fund the proposed Projects. For 2015, the Nuevo Leon State Congress is expected to authorize additional debt levels that will include the remaining funding requirements for the Projects. This Project is estimated to cost up to $647.3 million pesos. Up to $550.0 million pesos of the loan could be used to pay related costs, such as design, construction, and supervision if necessary. The NADB loan will complement other sources of funds. The repayment source for the NADB loan will come from the State s federal tax revenue derived from the General Fund. The State has pledged a portion of its current and future General Fund revenue into a Master Trust, which will serve as the payment mechanism. The pledge has been made in accordance with Article 9 of the Federal Fiscal Coordination Law. The pledge instruction is irrevocable, and the trust will repay the loan automatically, thus ensuring that payments are made in full and in a timely manner. NADB performed a financial analysis of the State of Nuevo Leon. The cash flow projections indicate that the State of Nuevo Leon has the capacity to meet all its financial obligations, including those related to this loan, without adversely affecting the normal business operations. In line with these conclusions, HR Ratings, Standard & Poor s and Fitch Ratings have rated the State of Nuevo Leon HR A-, mx A- and BBB+, ion a local scale, respectively. Considering the Projects characteristics and based on the foregoing financial and risk analysis, the proposed Projects are financially feasible and present an acceptable level of risk. Therefore, NADB proposes providing a market-rate loan of up to $1,000.0 million pesos to the State of 15

17 Nuevo Leon, for the construction and related costs of the Projects, of which up to $550.0 million pesos could be used for the Project described herein PUBLIC CONSULTATION 3. PUBLIC ACCESS TO INFORMATION BECC released the Draft Project Certification and Financing Proposal for a 30-day public comment period beginning September 19, The following Project documentation is available upon request: Strategic Planning for the Modernization of Irrigation District 004 Don Martin (Agosto 2006). Geographic Information System Irrigation District Don Martin (December 2008). Flagship Project Sustainable Water Management in the Irrigation District 004 Don Martín (June 2009). Analysis on the Management and Use of Water in the Agricultural Sector of Nuevo León (October 2011). Coordination agreement signed on, between the state of Nuevo Leon, SAGARPA, CONAGUA and the associations of the DMID users of the state of Nuevo Leon (July 2012). CONAGUA s official letter No. BOO.821.DR (14). (September 2014) OUTREACH EFFORTS As part of development of the Flagship Project Sustainable Water Management in the Irrigation District 004 Don Martín, several interviews with government officials, and representatives of the users associations were held in order to collect opinions and information related to the use of water in the DMID. The study describes that people interviewed provided important feedback to the study and expressed their interest to find an opportunity for the modernization of the District as they believed that this type of project could activate the economic sector. The study also included interviews with farmers that currently grow crops and those that have abandoned this activity within the DMID. The interviews supported sufficient documentation of areas with abandoned parcels, users that do not have the capacity to manage their parcels and some other users that did not want to continue any activity. The interview process also made it possible to identify all stakeholders involved in the Project such as the users associations. 16

18 In order to define the strategic actions, the project sponsor in coordination with CONAGUA and SAGARPA organized two working sessions with the users of the DMID to develop a program required to modernize the district. The first session was held on May 26 and 27 of 2009, in the town of Anahuac, Nuevo Leon. The second meeting was held in June 2009 in the same place. During the working session, the sponsor and stakeholders discussed the objectives, background of the existing infrastructure, existing agricultural conditions and prepared outreach materials. Promotional videos were also developed to promote field visits among stakeholders. Project information is also posted on the web page of the State of Nuevo Leon. BECC conducted a media search to identify potential public opinion about the Project. References to the Project were found on several internet sites. The majority of the information found, highlights the benefits of the Project. Sexenio. (September 26, 2012). Nuevo Leon State Government initiated the modernization of Don Martin Irrigation District. El Regio (April 11, 2014). The State governor and the secretary of Agriculture, Livestock, Rural Development, Fish and Food, supervised the activities for the modernization of Don Martin Irrigation District. Inforural (March 25, 2013). The General Director of the Nuevo Leon Agriculture and Livestock Development Management Corporation and the Deputy Manager of Irrigation Districts of CONAGUA supervised the activities for the modernization of Don Martin Irrigation District. As reflected in the articles above, Project information has been made available to the general public, and the Sponsor and organizations involved have participated in the development of strategies. The Project Sponsor has demonstrated a willingness to address comments and continues to work to satisfy information requirements. 17